Inside Facebook’s $10 Billion Breakup With Advertisers.
Privacy features prompt e-commerce businesses to slash ad spending; ‘Apple has changed the game’
Facebook was long one of the surest bets in digital advertising. No longer.
Lots of other companies that depend on e-commerce sales, including makers of nutritional powders, eyebrow stencils and toilet sprays, are taking a look at their bottom lines and deciding the same thing. They are slashing their spending on Facebook and Instagram and sending their ad money to Google, Amazon.com Inc., Snap Inc. and other platforms, according to ad buyers and e-commerce companies.
The privacy change is hitting the heart of Meta’s business: its ability to target ads at users with precision and prove to marketers that the ads generate sales. Earlier this month, Meta said it expects a roughly $10 billion hit to sales this year as the result of the Apple change, which requires apps to ask users for permission to track their activity and share it.
Google this week unveiled its own proposal to curtail tracking of users across apps on Android devices, potentially exacerbating Meta’s challenges.
Meta has said that macroeconomic forces including inflation and supply-chain disruption also are putting pressure on ad spending. But the privacy push appears to be the biggest threat to the social-media giant’s once ironclad grip on ad spending by small online businesses and e-commerce companies.
Investor fears about the fallout from Apple’s change are one of the reasons that Meta’s market value has dropped by more than $300 billion since the recent earnings report.
Facebook has been trying to blunt the effects of the Apple changes, and some analysts are optimistic that Meta will contain the damage and that its business could begin to rebound in the second half of 2022.
Meta said in a written statement that it has more than 10 million advertisers. “Apple’s harmful policy is making it harder and more expensive for businesses of all sizes to reach their customers,” it said. “We believe Facebook and Instagram remain the best platforms for businesses to grow and connect with people, and we’ll always keep working to improve performance and measurement.”
Meta has been working to show advertisers that ads on Facebook and Instagram are driving more sales than its analytics show. And the company is developing new technology it hopes will give marketers nearly as much information about ad performance as they had before Apple’s changes.
Meta also has appealed to users to opt into device tracking. But data from app analytics provider Flurry shows that only 18% of U.S. users are choosing to do so across all apps. Meta has rolled out more e-commerce features within Facebook and Instagram so that more transactions happen within its own ecosystem.
Apple’s change could be the most disruptive innovation Meta ever faces, said analyst Daniel Newman of Futurum Research, which focuses on digital technology. “Facebook has built its empire on the ability to acquire intimate details about user behavior across the internet,” he said. “Apple has changed the game.”
Meta’s big investment in the metaverse is an attempt to create a future in which it is not beholden to other device-makers, some ad industry executives said.
Meta has been critical of Apple’s move, saying it would hurt not only its revenue, but also small-business advertisers and app makers, and that Apple has created a false trade-off between personalized services and privacy.
Inside Meta, some employees saw Apple’s change, and Google’s move in the same direction, as efforts to damage Meta’s business, according to a former employee of Meta’s ad-product division familiar with internal discussions. Advertising industry executives said marketers began to think more about moving money away from Facebook back in the summer of 2020, before Apple’s change. In the aftermath of the George Floyd murder, some brands temporarily boycotted Facebook over concerns about hate speech and faulty information on the platform. The ad executives said that was an inflection point for many companies who felt they had become too reliant on Facebook.
Women’s handbag brand Hammitt worked with Measured Inc., a company that uses statistical modeling to estimate how well Facebook ads are performing. The official rates reported by Facebook are abysmal, said Hammitt founder Tony Drockton, but Measured’s reports showed Hammitt’s Facebook ads are nearly as effective as they were before the privacy changes took effect.
As a result, Hammitt reduced its Facebook ad spending only slightly, from 50% of its total ad budget to 43%. Hammitt’s total dollars spent on Facebook actually increased because the company boosted its overall ad budget.
Facebook has said it has been undercounting how effectively its ads have worked for advertisers, and that it has recently made progress in solving the problem.